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TREASURIES-U.S. bond prices rise on disappointing U.S. GDP data
July 29, 2016 / 4:30 PM / a year ago

TREASURIES-U.S. bond prices rise on disappointing U.S. GDP data

* Traders pare Fed rate-hike view on paltry U.S. growth
    * Benchmark yields hit 2-week lows, 2-year yield 1-week low
    * U.S. yields jumped after BOJ move falls short of
    * Treasuries on track for slim return in July - Barclays

 (Updates market action, adds quote, byline)
    By Richard Leong
    NEW YORK, July 29 (Reuters) - U.S. Treasury prices rose on
Friday with benchmark yields touching two-week lows as
disappointing U.S. economic growth data caused traders to scale
back expectations on the Federal Reserve raising interest rates
in the coming months.
    Gross domestic product (GDP), the government's broadest
economic gauge, grew at a 1.2 percent annual rate after rising
by a downwardly revised 0.8 percent pace in the first quarter,
the Commerce Department said on Friday. Economists polled by
Reuters had forecast GDP growth rising at a 2.6 percent rate in
the last quarter. 
    "The economy is running at a very low-productivity growth
rate. This continues to provide strong support for U.S.
Treasuries," said Jan Dehn, global head of research at Ashmore
Investment Management in London. 
    Benchmark 10-year Treasury notes were up 10/32
in price for a yield of 1.475 percent after hitting a two-week
low of 1.472 percent.
    The two-year Treasury yield, which is sensitive
to traders' views on Fed policy, was down 5 basis points at
0.671 percent, its lowest in over a week. It rose to 0.778
percent on Tuesday, which was its highest since Britain voted to
leave the European Union on June 23.
    With the drop in yields this week, U.S. government bonds are
on track for a return of about 0.08 percent in July following a
2.21 percent gain in June, an index compiled by Barclays showed.
    Interest rates futures implied traders saw a 33 percent
chance the Fed would raise rates by year-end, down from 43
percent on Thursday, CME Group's FedWatch program showed. 
    The bond market rebounded from overnight losses after the
Bank of Japan's expansion of its bond purchase or quantitative
easing (QE) program fell short of expectations. Investors had
hoped for an aggressive move that would increase the BOJ's
purchase of Japanese government bonds. 
    "All the QE central banks are facing the same problem. They
are running out of bullets. The BOJ reflects that," Dehn said.
    While the latest headline GDP figures missed expectations
due largely to a plunge in inventories, the report's details
were seen as less ominous among some analysts who cited strength
in consumer spending and modest price growth.
    Another quarter of sub-par U.S. growth may keep the Federal
Reserve from raising rates in September, analysts said.
    However, San Francisco Fed President John Williams said at
an event in Cambridge, Massachusetts that data in coming months
could support up to two rate increases this year. 
  July 29 Friday 12:24PM New York / 1624 GMT
 US T BONDS SEP6               173-30/32    0-19/32   
 10YR TNotes SEP6              132-248/256  0-104/25  
                               Price        Current   Net
                                            Yield %   Change
 Three-month bills             0.25         0.2536    0.016
 Six-month bills               0.3675       0.3733    -0.005
 Two-year note                 100-42/256   0.6672    -0.051
 Three-year note               99-246/256   0.7634    -0.054
 Five-year note                100-102/256  1.043     -0.051
 Seven-year note               99-156/256   1.3086    -0.046
 10-year note                  101-96/256   1.4736    -0.037
 30-year bond                  106-68/256   2.2116    -0.017
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
 U.S. 2-year dollar swap        21.75         0.25    
 U.S. 3-year dollar swap        17.50        -0.25    
 U.S. 5-year dollar swap         1.75        -0.25    
 U.S. 10-year dollar swap      -11.25        -0.50    
 U.S. 30-year dollar swap      -45.75        -1.00    

 (Reporting by Richard Leong; Editing by Jeffrey Hodgson)

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